Nexus - 0209 - New Times Magazine-pages

Page Content (OCR)

When next you walk the streets of a major city note how many bank _—_and free market economics. Such policies are of unquestioned advan- buildings there are. Comer after corner is occupied by huge highrises tage to the bankers themselves but less obviously so the workers of bearing the names of our masters. Note also the buildings of their sub- Venezuela, Brazil or, God help us, Australia. sidiary finance and insurance companies. Then remember that almost If this is so with business, commercial and sovereign debt, it is much all other buildings that do not bear their names are also collateralised to _the same for the private individual. Just as all credit is not destructive them by their owners. nor therefore is all debt. Where we can comfortably service debt it Several important question arise at this point works for us in expanding purchasing power and access to resources First, is credit so bad? Of course not. It gives rise to actual purchas- for a wide variety of uses. Both the degree and nature of indebtedness ing power and much of it is exchanged for real goods and services. are therefore important considerations. How we cope with our debt is Without it, it would be very difficult for anyone without capital to What is most important Moderate debt under control is socially cre- establish a business, so the rich would remain in charge and the poor —_ ative; debt out of control is socially destructive. would remain poor. Credit is one of the agents of social mobility. But Although individuals may escape unmanageable debt by opting for delivering the power to create and distribute it into the hands of private bankruptcy, this means that the collateralised assets change hands. banks is fraught with danger. Governments therefore, have an obligation to create constructive cop- It was the awesomness and potential abuse of this power that caused ing mechanisms in the form of compassionate and just bankruptcy Thomas Jefferson to say, two centuries ago: laws. | believe that banking institutions are more dangerous to our lib- Australian governments have been weak in this law-making role, erties than standing armies. just as they have been weak in monitoring the system at large, and so Not only is it dangerous. It also means abandoning one of the most Australians, both individually and collectively, are frequently at the powerful tools of a nation’s control over its own destiny. Little wonder mercy of creditors. In efforts to avoid bankruptcy and to retain their that Mayer Amschel Rothschild, the founding father of one of the assets they frequently commit themselves and their families to virtual greatest and wealthiest banking families in history said this: permanent indebtedness. For the more fortunate debt may be transient Permit me to issue and control the money of a nation and | care and short lived, but for many it has become permanent. It is their slav- not who makes its laws. ery. Abraham Lincoln thought he had the answer: INTEREST The government should create, issue and circulate all the curren- The final question in this chapter is that of interest rates. It is this cy and credit needed to satisfy the spending power of the gov- area probably more than any other which concerns ordinary emment and the buying power of consumers. The privilege of creating and issuing ray is not only the supreme prerogative of government, but it is the government's greatest creative opportunity. EE I if der to the bank. Of And it was this realisation that caused the founding fathers portihatig a oa 4 parl to of the Commonwealth of Australia to create a banking . . invest wel high inbevest canes: bs system designed to match Lincoln's dream. Permit me to issue and Ope a pe What, then, will history say of those who, in the name control the money ofa ual Australians and of our business of deregulation, systematically and deliberately weakened * enterprises is promoted by lower inter- public control and supervision? nation and I care not est rates. - . Australians. This is for two reasons; interest is what they have to meet month by month, and it is interest charges that determine whether they sink or swim - whether they save their The implications of what has been described are that who makes its laws. In its simplest terms, interest is the most teal property and resources of the world are now in rice of hiring money. Just as you pa’ the control of banks. As financiers have increased the Mayer Amschel Rothschild eas for * use ye a hein ole availability of credit to individuals, businesses, institutions you pay a charge for the use of rented and governments, so in tun they have increased their con- _—_—_——___ A money. And it has been mighty trol and power. expensive in Australia in recent times. Australians, from the mid '80s Because they are inextricably linked, the explosion of credit in through until mid ‘91, were paying between 13-18% for home mort- recent decades has also been an explosion of debt. Much of the gages, 18-24% for overdraft funds, 20-25% for rural short term world's productive effort and resources are consumed in servicing the finance, 20-25% on credit card finance and 18-25% on lease and hire interest and other costs of this deliberately created debt and much of _ purchase finance. Additionally, a range of management charges our productive effort is to avoid foreclosure and the loss of collater- —_ applied in many cases. Often rates were subject to variation without alised assets. notice or agreement and borrowers were frequently not clear as to what Moreover, as banking has become global the web of debt now spans _ates they were paying or what charges applied until they were levied. oceans and continents. With growing internationalism have come the By world standards these levels were exorbitant. What, then, is fair? challenges inherent in the uneven distribution of the world’s resources It is generally reckoned that, in a ‘free’ money market, the base rate and wealth and the vastly complicated question of international lend- of interest will be between 2 and 3% above inflation. It never works ing, exploitation and indebtedness. Bankruptcy allows an ‘out’ for indi- quite like this, however, because the market may take a longer view. viduals and corporations so they may escape permanent debt if they are There was a period, in fact, when Australian interest rates were actual- prepared to part with their assets, but sovereign debt, (the debts of ty Jess than inflation, but this was because the market expected (right- states and nations), is much more difficult to throw off. ly) that inflation would soon come down. As it did so, the rates In the complex world of international currency dealings, countries dropped, but not as fast as inflation. This, too is to be expected. which have entered into debt in their own currencies have been able to At the time I write, however, inflation has been at a rate of 3-4% per reduce the damage of their debt by deliberate devaluation of their annum for two years. This should be long enough for interest rates to domestic currencies. However, where debt is in other denominations, come down to match, and would make a ‘reasonable’ base rate of 5-7%. as is the case with the greater part of our own national debt, this cannot —_ But they are standing at 8-9% and show no indication of coming down. be readily done. ; ; ; i _ When, Congressman Henry Gonzales, Chairman of the US Furthermore, the international banking community is more willing Congressional Committee on Banking, leamed of the levcl of charging to accommodate those countries whose monetary policies are judgedto —_ by Australian banks he commented, “Any country which tolerates be prudent or responsible. This sounds fine. But what is prudence and usury cannot prosper". (Comment made to Paul McLean at a breakfast responsibility? International bankers know the answer: deregulation —_ meeting in Washington DC, on July 19th 1991). Continued on page 64 and free market economics. Such policies are of unquestioned advan- tage to the bankers themselves but less obviously so the workers of Venezuela, Brazil or, God help us, Australia. If this is so with business, commercial and sovereign debt, it is much the same for the private individual. Just as all credit is not destructive nor therefore is all debt. Where we can comfortably service debt it works for us in expanding purchasing power and access to resources for a wide variety of uses. Both the degree and nature of indebtedness are therefore important considerations. How we cope with our debt is what is most important Moderate debt under control is socially cre- ative; debt out of control is socially destructive. Although individuals may escape unmanageable debt by opting for bankruptcy, this means that the collateralised assets change hands. Governments therefore, have an obligation to create constructive cop- ing mechanisms in the form of compassionate and just bankruptcy laws. Australian governments have been weak in this law-making role, just as they have been weak in monitoring the system at large, and so Australians, both individually and collectively, are frequently at the mercy of creditors. In efforts to avoid bankruptcy and to retain their assets they frequently commit themselves and their families to virtual permanent indebtedness. For the more fortunate debt may be transient and short lived, but for many it has become permanent. It is their slav- erv 14¢NEXUS AUGUST-SEPTEMBER 1992